UK MPs to launch inquiry into ratings agencies

The UK Parliament’s Treasury Committee is to carry out an inquiry into credit rating agencies, assessing their transparency and whether they have become too powerful.

The inquiry comes as ratings agencies are once again in the firing line in the aftermath of the credit crunch.

Having been accused of failing to properly monitor banks and other financial institutions following the Lehman Brothers collapse, they are now facing criticism from a number of countries over the timing of recent downgrades.

France, which is yet to lose its AAA-status despite speculation a downgrade is coming, has already vented its anger after Standard & Poor’s accidentally downgraded it last month.

While the UK also retains its AAA rating for now, the Treasury Committee is keen to review the impact ratings agencies have had.

Key questions to be raised are:

1. Is the methodology used by ratings agencies sound and transparent?

2. Do the rating agencies have the right incentives to do their job properly? Do they have conflicts of interest on either the corporate or sovereign side?

3. How accountable are the major credit rating agencies? Have the ‘big three’ agencies become too powerful?

4. Are the proposals put forward by the European Commission with respect to ratings agencies based on the right objectives? Will they achieve the Commission’s aims?

5. Do the agencies influence the political process in any way? What are the appropriate limits to credit rating agency political influence?